Barclays, the bank that pulled out of South Africa in 1986 after protests during the apartheid era, said yesterday it was in talks to buy a majority stake in Absa, one of the country's four big banks.

Barclays, the bank that pulled out of South Africa in 1986 after protests during the apartheid era, said yesterday it was in talks to buy a majority stake in Absa, one of the country's four big banks.

Barclays said it did not expect to issue ordinary shares to fund any deal, but declined to say how much the offer would be worth. "This process is at an early stage," Barclays said. It added that the discussions were not advanced enough to require an approach to regulators, who would have to approve any transaction.

The news, which came after weeks of speculation, drove Absa shares to a new high, valuing the company at more than 40bn rand (£3.5bn).

Barclays, Britain's third-biggest bank by assets, was penalised in the UK in the 1970s and 1980s for its involvement in South Africa and suffered a drop in its share of the UK student market from 27 per cent to 15 per cent before its withdrawal.

The bank returned to South Africa in 1995 with its corporate and investment banking business, but it does not have a retail presence there at the moment. "Absa is particularly strong in its retail business," a Barclays spokesman said yesterday, adding that the South African retail market is growing at a rate approaching 15 per cent a year. The spokesman said the acquisition would fit with Barclays' rationale of boosting earnings from overseas.

Absa shareholders, including Sanlam, the biggest South African-owned insurer which has a 21.3 per cent stake in the bank, said they would consider an offer depending on the price.

Other big shareholders include: investment company Remgro, with a 9.4 per cent stake; South Africa's Public Investment Commissioner, with 8.7 per cent; Investec Asset Management, with 5 per cent; and the life insurer Sage Group, with 4 per cent.

South Africa's government will ultimately decide whether the deal goes ahead, but said yesterday that it had not been approached. Trevor Manuel, South Africa's Finance Minister, said yesterday that the country's policy of keeping its four main banks locally-owned and regulated still stands, but the government might consider shifting its position.

In 2000, the government blocked a bid by Nedcor to buy another of the "big four", Standard Bank, saying it would reduce competition.

Barclays said that if the deal goes ahead, it would boost earnings immediately and add to its existing African operations. The bank is present in 11 African countries, and says it is the leading sub-Saharan bank. Last year it moved the headquarters of its African business from London to Johannesburg.

Absa has 38 to 40 per cent of South Africa's retail market, with more than six million customers, while its other activities are regarded as a weakness.

Chris Steward of Investec Asset Management said: "Absa has underperformed in corporate and merchant banking and Barclays could add value to that area. Barclays has also decided that Africa is important again and has set up a reasonable franchise in the continent. What with its global client base and Absa's local know-how, there are synergies for the two."

Absa's board has recently undergone some changes. Nallie Bosman stepped down as chief executive in August after more than six years at the helm. His successor, Steve Booysen, 42, is the youngest chief executive of a South African bank.

Absa, which has more than 31,000 staff, assets of 307bn rand, 668 branches and more than 4,500 ATMs, reported a 21 per cent increase in annual headline earnings per share in May. The bank's cost-to-income ratio was still above target at 57.1 per cent in the year to the end of March.

Mr Steward warned yesterday that it would be naïve to expect Barclays to pull Absa's ratios in line with UK norms as it operates within a different infrastructure. Mr Steward said: "I would be surprised if Barclays wanted to enter a price war with other banks. Instead Absa offers an attractive return on equity."

A spokeswoman for Barclays suggested that the UK bank would not seek a South African listing. Barclays shares closed down 24.5p to 520p.